The Dealmakers Forum E-Newsletter, November 12, 2014 - Extendicare exits U.S. market with sale of 176-community portfolio

 

Bringing You Senior Care M&A Deals and News
 

November 12, 2014 Issue:

Seniors Housing Weekly Update: 60 Seconds with Steve Monroe
LTC Properties sells or leases 37 properties: With a looming December 31 lease termination deadline, LTC keeps some of the former Assisted Living Concepts properties and leases some others............ Read More   

 

 

Recent Senior Care M&A Deals
Long-Term Care    
Acquirer Target Price
Private Company $12 million
Regional Operator $4.4 million
Gryphon Senior Living Group LLC Country Gardens $3.1 million
National Health Investors, Inc. Assisted living community $18.1 million
National Health Investors, Inc. Assisted living community $5.65 million
The Covenant Group University Place $8.9 million
Enlivant 16 assisted living communities $26.47 million
Real estate investor The Grace Care Center of Lufkin $4.5 million
Aviv REIT, Inc. 28 properties $305 million
Summit Healthcare REIT, Inc. SNF in OR $4.2 million

 

 

Deal of the Week 

Ontario, Canada-based Extendicare looks to be exiting the senior care business in the United States after running into regulatory issues with the U.S. government, agreeing to sell 176 communities in its American portfolio to Formation Capital, a private equity firm based in Alpharetta, Georgia, for $870 million. Extendicare will retain 10 of its U.S. SNFs, though the facilities will still be held for sale. The U.S. portfolio reported revenues for the 12 months ending September 30, 2014 to be $1.16 billion, and net operating income was $129 million, which reflected a 14.8% cap rate. Formation will assume approximately $635 million of mortgage loans plus other debts related to the business, in addition to paying $222 million in cash, which Extendicare will use to expand its Canadian business. An additional $30 million of indebtedness will be repaid at closing as well, which is expected to be some time in the first half of 2015. Extendicare has been looking to leave the U.S. for some time, as the company was being investigated by the U.S. Department of Justice for allegedly billing Medicare and Medicaid for poor care of elderly residents, which delayed the bidding process for the portfolio. But on October 10, 2014, Extendicare announced that it would pay a $38 million settlement, while still denying any wrong doing, and the bidding process continued. The portfolio comprises 141 owned and operated senior care communities, four communities operated under lease agreements, 10 operated under managed contracts, and an additional 21 facilities in Kentucky that are leased to a third-party operator. Guggenheim Securities acted as financial advisor to Extendicare, while BofA Merrill Lynch and Desjardins Capital Markets acted as financial advisors to Formation Capital.

 

 

Financing of the Week

It’s not often you hear a REIT provide financing for a CCRC. The properties are often hard to underwrite because of the entrance fees, NOI after stabilization is generally smaller than rental senior living communities, and CCRCs often cannot receive financing before significant presales. Nevertheless, National Health Investors (NYSE: NHI) recently agreed to lend up to $154.5 million to recapitalize and expand a CCRC in Issaquah, Washington. The community, located in the greater Seattle area, was built in 2008, with 184 IL units and 36 transitional care beds, and is currently 95% occupied. The manager, Life Care Services, and its partner Westminster Capital, decided to significantly expand the community, with plans to add 145 IL units, 26 assisted living and memory care units and nine transitional care beds in addition to a swimming pool, dining room, fitness center and other amenities. The joint venture will receive a $60 million senior loan to refinance the property, with a 10-year term and 6.75% interest rate that rises 10 basis points per year after the third year of the loan. The transaction will also include a $94.5 million construction loan, with a 5-year maturity and an 8% interest rate. The 180-unit expansion is 75% pre-sold, and the proceeds from the entrance fees of these new units, which average about $700,000 per unit, will go towards paying off the construction loan. Accompanying the loan is an option for NHI to purchase the community contingent on reaching certain performance milestones. NHI will fund an initial amount of $30 million on the senior loan at closing from borrowings on NHI’s revolving credit facility.

 

Stat of the Week

In a supplemental quarterly report we released for The 2014 Senior Care Acquisition Report, we revealed the average price per unit in all skilled nursing and senior care transactions for the 12 months ending September 30, 2014, and one thing was clear: prices are rising, and rising fast. For assisted living, the average price per unit rose 30.5% from the previous year from $150,600 to $196,600. For combined independent and assisted living, prices were up 28.8% from $164,000 to $211,300 per unit, and skilled nursing facilities went from $73,300 per bed to $78,400 per bed, a 7.0% increase. Cap rates for each segment of senior care also decreased significantly from the previous year: down 70 basis points from 8.7% to 8.0% for assisted living, down 60 basis points from 8.5% to 7.9% for combined independent/assisted living and down 70 basis points from 13.0% to 12.3% for skilled nursing. The availability of equity and cheap debt, plus an influx of new buyers, has been driving prices up and cap rates down in this seniors housing bull market, which so far appears to be stronger than the last peak in 2006-07......................Want to read more news? Click here for a free trial to The SeniorCare Investor and download the current issue today

 

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